Compensation & Benefits NHRDN Workshop Pune 17th March 2012

NHRD- C&B Workshop on 17-March-2012

• Major Compensation Trends 2012
• Generation Based Approach
• Impact of Union Budget & Tax Savings
Components
• Smart ways of restructuring Salaries
• Using Quality Tool in HR
By Parul Mittal
Head C&B;Zensar tech
www.zensar.com | © Zensar Technologies Ltd. 2012

Major Compensation Trends 2012
 Focus areas for C&B
 Average % increments :
 Industry segment wise
 Management cadre wise
 Economy wise
 Increment trends
 Trends on variable pay


Emerging trend on Focus areas for C&B

 Continued research by employers on effective ways to use C&B as a
differentiator against competition
 Smart benefits receiving more significance than just Cash compensation
 Car lease policies ,NPS and other tax saving schemes are being reviewed.
 ESOP may be costly due to IFRS norms
 Medical benefits : Coverage to extended families, coverage post
superannuation, wellness program, leave policies.
 Increasing take home salary by making C&B structure more tax friendly
without increase in overall wage bill
 C&B structure customized to suit various generations, viz, X, Y and Z


Major Compensation Trends 2012(AON Hewitt)

Managerial cadre Expected average
Industry segment Expected average % increment for
% increment for 2012
2012 Entry level 11.8%
Pharmaceuticals 13.3%
Junior Management 12.3%
Engineering and 13%
Middle Management 12%
design services
Senior Management 11.1%
Infrastructure 12.9%

Heavy engineering 12.4%

FMCG 12.4% Nation % Nation %

IT 11.9% India 11.9% Australia 4.6%

Telecom 11% China 9.5% Hongkong 5%

BFSI 10% Japan 2.8% Malaysia 6.2%

Philippines 6.9% Singapore 4.8%
Critical talent pool 15.1%
www.zensar.com | © Zensar Technologies
Ltd. 2012

Increment Trends

 2011 with 12.6% average hike was better than 2010

 2012
 11.9% average salary hike (IT)

 10% (financial institution/auto/gen engineering/BPO)

 India has outpaced Asia pacific again with highest salary

hikes in the region


Trends on Variable pay

 Increased use of variable pay with lower fixed salary income
 Variable pay being introduced or increased at Middle
management level
 Various innovative forms of variable pay introduced to boost
performance
A quick snapshot of emerging trend :
Earlier Now

Sr. Management 18% - 20% 25% - 30%

Middle Management 10% - 12% 18% - 20%

Jr. Management 5% - 8% 10% - 12%


Trends on Variable pay
Pros Cons

To build a performance oriented culture Reduces take home salary which could
impact the morale of the associate
To differentiate between various levels Many times, is linked with the associate
of performance being on the rolls of the company on a
specified date
Builds flexibility into overall If not properly designed might force
compensation structure associates to stretch creating stress and
affecting morale of the associate
To recognize outstanding performers If it is not objective and transparent
might create confusion and suspicion in
the minds of the associates
Will help in retention of critical talent A tendency amongst associates to see it
and high performers as a deferred pay


Extracts from AON Hewit survey


Generations based approach


Total rewards : Moving back to old world charm in a new digital
economy

1990
Low cash
High benefits

Where are we 2000
moving to : Medium cash
Flexible benefits Medium benefits

2010
High cash
Valued benefits


Any C&B scheme should make sense to the end user


Any Questions? Thanks


Basics of Tax savings
components


Income Tax Slab rates

Income tax rates for assessment New Income tax rates for
year 2012-13 Men & Women (FY assessment year 2013-14
2011-12) (FY 2012-13)
Up to Rs
1,80,000/1,90,000( No tax / Up to Rs No tax /
W) exempt 2,00,00 exempt
1,80,001/1,90,000( 2,00,001 to
W) to 5,00,000 10% 5,00,000 10%
5,00,001 to 5,00,001 to
8,00,000 20% 10,00,000 20%
Above
Above 8,00,000 30% 10,00,001 30%
 Changes- Min Net Savings of Rs 22,000
 Deductions of Rs 5,000 for Executive Health Check U/S 80 D over current provisions
 Deductions of Rs 10,000 on interest earned from savings bank account u/s 80TTA

Budget 2012-13: relevant provisions
 The senior citizen age has been reduced from 65 to 60 years as declared in
union budget as on 16march 2012 .The threshold limit of exemption for them
will remain Rs 250000/- and for 80 years and more will remain Rs 5 lacs.
 Senior citizens are exempted from payment of advance tax.
 For reporting mechanism in real estate sector ,a rate of 1% shall be deducted if
property is> Rs 50 lacs in urban agglomeration and >Rs 20 lacs in any other
area
 TDS on cash sale of bullion and jewellery: Seller of bullion and jewellery shall
collect tax@1% of sale consideration from every buyer of bullion and jewellery if
sales exceeds Rs 2 lacs and sales is in cash.
 Under sec 194 j ,tax is required to be deducted on the remuneration paid to a
director which is not in the nature of salary at the rate of 10% of the
remuneration with effect from July 2012
 Wealth tax will not be levied on the residential house alloted by the company to
the employee if employee’s income is less than 10 lacs.


As –IS provisions

 Section 80C:
 Life insurance
 Home loan principal payment
 Employees Provident Fund (EPF)
 Public Provident Fund (PPF)
 Tuition fee of your child
 Section 24 : This is one of the popular sections in the act that allows a home buyer who has
taken a housing loan to avail of tax deductions of up to Rs 1.5 lakh on interest paid on that loan
 80CCF Introduced last yea, this allows one to invest up to Rs 20,000 in notified infrastructure
bonds
 Section 80D This section deals with deductions you can avail of if you have a mediclaim policy
 80E (education loan), 80G (donations to charities), 80DD (medical treatment of a
disable person), 80DDB (treatment for specified diseases) which also allow you
deductions.


Monetised and Non Monetised

Financial Non Financial

 Excellence Award &Spot Awards
Pay -for role via Fixed salary  Insurance personal and accident
insurance policy
Pay -for performance via Variable Pay and
Increment  Executive Health Check Up ,Birthday Coupons
Pay for skills via Skill Allowances  Careers enhancement through Training. Higher
edu (PHDs)
Pay for Value Proposition
 Club Membership
 Special Business Plans
 Concierge Services
 Sales Incentive
 Free Parking for Car Pool
 Shift allowance/ Over time
Allowance/Attendance Incentive for IT/  Mobile Phone reimbursements
BPO as applicable
 Freedom to select a team
 Concept of cash for referrals
 Work Life Balance
 Loans and Advances
 Flexi Hours/Work From Home
 Parents Medicare
 Business Travel Insurance
 Car policy for senior Associates
 Spouse Placements when relocating
 Creche Facility
 Continued Insurance Cover for family in case
associates are abroad
 Free Doctors and Counselors
 Townships, Schools
 Corporate Discounts

Flexible Benefits Plan/Bouquet of Benefits

Flexi basket is a bouquet of benefits offered to plan for future
contingency and save tax
-LTA (Leave Travel Assistance)
-HRA
-Medical Reimbursements
-Meal Coupons
-Children Education Allowance
-Telephone reimbursement
-Superannuation
-Company Car , Drivers salary & Fuel Allowance


Leave Travel Assistance

 LTA is taxable twice in a block of four years, current Block Jan
10 to December 13

LTA for Domestic journeys performed through the shortest air
amount not exceeding air economy fare of the National Carrier.


House Rent Allowance, Meal & Medical

 HRA -The maximum entitlement provided per associate is 50 % (Metro)or
40%(Non Metro)

 Medical -The maximum limit for all associates is Rs.15,000/- per annum.

 Meal-The meal coupon is a tax saving benefit provided to the associate by
the company, the entitlement per associate is Rs. 13200- per annum.


Child Education & Telephone Allowance

 Child Education allowance-Entitlement per associate per child per annum up
to a max of 2 children

 Telephone Reimbursement-Associates are entitled for reimbursements of
expenses for official purpose only


Superannuation
 15% of Annual Basic or Rs 1 lacs whichever is less
 Transferable and Interest is credited Annually
 Superannuation contribution is a part of compensation


Company Car Policy, Driver & Fuel
allowance
 Company Car-The company provides assistance to associates in buying a
car as per grade applicability.

 Driver Allowance-Company usually provides for driver’s salary. This is an
additional benefits the company provides & forms part of Flexi components

 Fuel Allowance – part of flexi component, extended to associates for fuel
expenses. E.g The entitlement per associate is Rs 1800 and 2400 per
month depending on the engine capacity.


Smart ways of Restructuring Salaries

a) Smart Budgeting and provisioning
b) Paying for variable pay annually linked to KRAs; Deferred Bonus -quarterly –
linked to BU performance
c) Cash Out / Add On Options
d) Paying through allowances-Skill/Special/Project to keep wage bill in control,
and driving competencies
e) Deferred Variable- Variable pay to be paid 160% over a period of say 3 years
f) Strategising increments driving required behaviour through bell curve


Symmetrical Bell Curve

HIGH
PERFORMERS AVERAGE
PERFORMERS
PERFORMANCE
NEEDS
IMPROVEMENT

A-15% B-70% C-15%


Skewed Bell Curve

HIGH

PERFORMERS AVERAGE
PERFORMERS PERFORMANCE NEEDS IMP.

A- 15% B-65% C-20%

Merit Pay Increase & Variable Payout

Performance Pay Variable
Band Increase % Payout % Remarks
12% in fixed Increment
and Rest 14% over a
period 12 Months, 30%
A 26 130 Extra Variable pay
B 12 100 and full 100% variable
C 6 70 and 70% variable


Significance of Bell Curve Distribution
 Bell Curve is quite significant e.g a budget available of Rs 10000 for payout of
VP

Performance Bell Curve Variable Variable
Band Split Increment Pay out % Pay Out
1% increase
in B equals
4.6%
increase in
A 15 A 130 1950
B 70 1% increase 100 7000
C 15 70 1050
Total 10000

Using Quality Tools-Taking HR
offerings to next level


What is quality
conformance to specifications

What is defect
Non conformance to specifications

What is DPMO
Defects per million opportunities


What is six sigma

 The term Six Sigma is widely used to refer to all of the following:
 A structured method for improving business processes. This method,
called DMAIC (Define, Measure, Analyze, Improve, Control), is
supported by an assortment of statistical tools.
 A statistical measurement of how well a business process is
performing. A process that performs at Six Sigma produces only 3.4
defects out of every million opportunities to produce a defect.
Processes that perform at lower sigma levels (such as one sigma or
four sigma) produce more defects per million opportunities. It is
possible for a process to perform at an even higher level (and thus
have even fewer defects), but Six Sigma has become popular as the
standard for excellent process performance.
 An organizational mindset in which people make decisions based on
data, look for root causes of problems, define defects based on
customer rather than internal requirements, seek to control variation,
track leading indicators of problems to prevent them from happening,
etc.


 Sponsor
 Senior executive who sponsors the overall Six Sigma Initiative.



Leader
Six Sigma Roles And Responsibilities
Senior-level executive who is responsible for implementing Six Sigma within the business.
 Champion
 Middle- or senior-level executive who sponsors a specific Six Sigma project, ensuring that resources
are available and cross-functional issues are resolved.
 Black Belt
 Full-time professional who acts as a team leader on Six Sigma projects. Typically has four to five
weeks of classroom training in methods, statistical tools, and (sometimes) team skills.
 Master Black Belt
 Highly experienced and successful Black Belt who has managed several projects and is an expert in
Six Sigma methods/tools. Responsible for coaching/mentoring/training Black Belts and for helping the
Six Sigma leader and Champions keep the initiative on track.
 Green Belt
 Part-time professional who participates on a Black Belt project team or leads smaller projects.
Typically has two weeks of classroom training in methods and basic statistical tools.
 Team Member
 Professional who has general awareness of Six Sigma (through no formal training) and who brings
relevant experience or expertise to a particular project.
 Process Owner


 Establish a clear and significant role of HR for institutionalizing
 Establish Six Sigma objectives and role in HR
 Seek customer feedback and identify opportunities for improvement
 Establish Six Sigma goals for HR function
 Formulate, prioritize projects and form teams
 Provide Six Sigma Green Belt training
 Implement DMAIC for breakthrough solution.
 SOME Examples of Six Sigma projects that companies’ HR
departments have: include reduction in overtime,
 reduction in time and cost to hire an employee, reduction in
employee Attrition, reduction in safety violations, reduction in cost of
Employee separation, and HR response to internal inquiries for
benefits, payroll, promotion and fairness.


Methodology

DEFINE
MEASURE ANALYZE IMPROVE CONTROL

• Define the problem

• Measure the symptoms/behavior of the problem we’ve defined

• Analyze the potential causes (elements of the process design) based on the symptoms
uncovered in measure

• Improve the process based on the results of the analysis

• Control the process at the new level of performance


Benefits – Holding the gains

Bandwidth per person
for query resolution/month(Hrs)

AS per current deployment

Benefits
• Major process improvement to save future efforts and increase
productivity
• Process Standardization.
• Improved Customer Satisfaction
• Better Utilization of resources
Horizontal deployment-
• Support functions including HR, Admin, Estate Management Department
Technical Infrastructure Management Service(TIMS)


Compensation & Benefits NHRDN Workshop Pune 17th March 2012

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Compensation & Benefits NHRDN Workshop Pune 17th March 2012